New Mortgage Rules Coming June 1, 2021

A New Stress Test is Coming…

Earlier this month the Office of the Superintendent of Financial Institutions (or OSFI) announced that they will be increasing the qualifying rate for those seeking to buy a home with a down payment of 20% or more. The proposed new mortgage rules for the qualifying rate for “uninsured mortgages” is the greater of 5.25% or the mortgage rate plus 2%.

OSFI also announced that they plan to revisit the qualifying rate at least once a year to ensure it is serving the needs of Canadians. This increase translates into about a 4.5% reduction in purchasing power for those who are putting down 20% or more. (This does not affect those putting less than 20% down) However, mortgage brokers have a lot of tools available to them that can help to get these clients approved. 30-year amortizations extended debt-servicing ratios, and alternative lenders are all possibilities once we are over the 20% down threshold.

The motivation for new mortgage rules is to maintain a strong financial system that can support Canadians in today’s environment and ensure a strong post-pandemic recovery. There are concerns about the current housing market and OSFI is acting so that Canadian banks will remain resilient. The minimum qualifying rate adds a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of a change in circumstances, such as the reduction of income or a rise in mortgage interest rates.

All cleared guidelines will be released May 24th and come into effect June 1st, 2021.

OSFI is seeking input from interested stakeholders on this proposed change until May 7, 2021. They will communicate their finalized decision by May 24, 2021, with an effective date of June 1, 2021.

Reach out to your Advanced Mortgage Professional today if you have any questions!